London games suggest Rio won't boom in 2016

BrianAsher

--Rio de Janeiro slates long list of development projects

--Past hosts plagued by inefficient, expensive investments

--Tourism boom doubtful, consumption increase temporary

RIO DE JANEIRO--Rio de Janeiro's municipal government is touting the 2016 Olympics as a chance to revitalize a beautiful but crime and poverty-ridden city. However, if London's experience is any indication, Rio shouldn't count on the games to invigorate its economy.

In fact, many argue the Olympics are a burden not a boon to host cities, as investments ahead of the games prove to be inefficient and anticipated surges in tourism fail to materialize.

A public declaration by Rio's municipal government proclaims "the games should serve the city, and not the city the games," pointing to a slew of infrastructure investments the government says will benefit citizens more than athletes. The ambitious public works projects for the Olympics will total 25 billion Brazilian reais ($12.4 billion), according to a Standard & Poor's estimate.

But economists say infrastructure investments made ahead of the Olympics often divert resources from more productive projects, and even worse, sometimes become useless after the events.

"Host cities often struggle to use facilities in a constructive way after the games have passed," said Samuel Tombs, an economist at Capital Economics consulting group in London. "In the U.K., there are certainly questions as to whether the money for the Olympics could have been used more constructively for transport in the rest of the country, or for schools or hospitals."

But, in its declaration, Rio's government says the Olympics "have brought a sense of urgency to projects that the city has needed for decades," arguing that an expansion of the city's rapid transit system will increase the percentage of residents who use high-capacity transportation from less than 20% to more than 60%.

The problem, say economists and watchdog groups, is that such investments will benefit only neighborhoods close to stadiums and athlete housing, distorting incentives to invest in other important transportation corridors.

Questions have arisen over Rio's management of the 2007 Pan-American Games. Apartments built to house athletes during the 2007 events were later sold privately, but residents complain that the buildings were constructed haphazardly, leading to floods, vacancies and plummeting property values.

According to economists, the most consistent beneficiaries of mega-events are local construction companies.

"The Olympics do provide a boost to the construction sector over a period of several years," said Mr. Tombs. "Clearly, local construction companies win, but it's a temporary boost."

Aside from public works, Rio's municipal government points to an expected long-term increase in tourism as a result of the 2016 games.

"The city may benefit from more tourism in the long run," said Orlando Alves Jr., an economist at the Urban Planning Institute of the Federal University of Rio de Janeiro. "But there is no conclusive evidence that the Olympics have boosted tourism in previous host cities."

If a tourism renaissance fails to emerge and infrastructure investments prove poorly managed, Rio would have little to show for its money besides a temporary increase in consumer spending during the 2016 games.

In London, a consumption increase appears to have been limited.

"It seems the games have provided a small boost to consumer spending in London, despite a lack of official data at this point," said Mr. Tombs. "But the boost has not been as big as some people had hoped for."

The Bank of England has estimated that the 2012 games will boost third-quarter gross domestic product in the U.K. by 0.2%, with the effect immediately reversed in the fourth quarter.

It is up to Rio to prove it can outdo past hosts and use the Olympics to boost its economy in the long term, but analysts remain skeptical.

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